More SaaS pricing strategies to Counteract Stagflation
The presentation was previously made earlier on SaaS pricing of fees and packaging for stagflation prevention in 2022. However, this article is based on the latest presentation given in March 2023 by David Vogelpohl. To find out more or look over the presentation from earlier, check out the additional details in the final paragraph of this post.
Pricing the price of your software as a services (SaaS) can be hard enough even during the best times. But figuring out how to dial in the appropriate pricing that will generate greater revenue when there is stagflation can be even difficult.
This article gives tips for making the most of pricing and packaging for your SaaS items in a subpar economy:
- What is Stagflation?
- Utilizing your pricing model to fight Stagflation.
- Enhancing your SaaS Pricing strategy for the innovative MRR vs. the net retention of revenue.
- Try out creative SaaS pricing models to unlock the potential for revenue.
- The rate of inflation isn't constant: Vary your strategy.
- How can help.
What exactly is Stagflation?
Succinctly put, stagflation is an economic phenomenon that is influenced by three main factors:
- The economy is slowing down.
- High inflation.
- High unemployment.
There's more pressure than ever to:
- The wallets of prospects you want to attract.
- The wallets of existing customers you'd like to see upgrade.
It's the reason taking time to consider your SaaS pricing model becomes crucial if you want to continue expanding your business even within a tight economic environment.
Using Your SaaS Pricing Model to Fight Stagflation
The easiest answer is to raise your prices as you'd not be alone if you did so.
Over a third of 's SaaS software, software, as well as digital products customers increased prices in the last year.
Incredibly, SaaS businesses tend to increase prices above inflation rates.
Pulling this lever -no surprise, it generally helps in increasing revenue, when it is an uneasy decision to make since many consumers have less funds for spending in a depressed economy.
Rethinking pricing and package is among the few levers that are not optimized in SaaS.
Why Raise Prices? What's the reason not to try something else?
There are a myriad of options you can pull to try to increase revenue when the market is sluggish, apart from increasing the cost of your products.
The possibility of increasing acquisition, boosting conversion rates and decreasing the rate of churn can be all possibilities.
But, each of these options take a lot of effort of time and effort from different departments in order to put them into practice.
If you consider the effort and money that will need to be put into the process of increasing sales or reducing the rate of churn using strategies like PLG, or product-led growth (PLG) or bolstered initiatives to improve customer satisfaction It can be an unwieldy and overwhelming procedure, as shown by medium and large T-shirts.
The large and medium t-shirts represents the amount of time, effort, and resources. that are required to put into place PLG as well as customer success strategies to improve customer retention and reduce the rate of churn.
Changes to pricing for products require minimal effort and are done swiftly, as is evident by the small t-shirt above.
According to Patrick McKenzie points out, it's as simple as replacing a lower number with a bigger number:
In the end, altering your prices could be the simplest, most straightforward option to implement when you need to increase revenue quickly.
Optimizing Your SaaS Pricing Strategy for New MRR and. net revenue retention The Growing Mustache
As you consider implementing new pricing methods, an additional thing to think about is whether you want to optimize for new MRR or net revenue retention or both.
Enter the "growth mustache."
The growth mustache is a sideways bracket an ex-CFO from my past always used to refer to. (I also added the "mustache" designation, as it does look like a mustache to me.)
Growth is fueled by increasing monthly recurring revenue (MRR) and new customers entering the market, and by Net Revenue Retention (NRR) which is the percentage of your current customers' MRR and ARR you are retaining or growing.
In the event that your NRR exceeds 100%, this is an increase in your profit however, the same applies to the value of your business.
Generally, there's operational leverage with different pricing and packaging however, you must also recognize that the environment in which the customers could have less coming into the store and more being expended. The way you alter your pricing could affect your capacity to acquire new customers, keep and grow existing customers as well, so keep this in mind as you begin making adjustments.
Try a New Pricing Model for SaaS that is Creative Combinations to Increase the Revenue
After you've decided you've decided that changing your pricing is the route to go but there's numerous ways to test. Per-feature pricing, pay-as-you go plans as well as freemium pricing models. flat-rate pricing as opposed to use-based pricing, per-user plans -- which one is the best for your SaaS enterprise?
There are several options to consider, as a starting point:
- SKUs:
- Platform tiered plans
- Product(s) tiered plans
- Persona tiered plans
- Single add-ons
- Bundles of Add-Ons
- Entitlements:
- Features
- Use
- Help
- Pricing:
- Price
- Recurrence
- Geography
- Payment method
- Discounts
- Free trials
Explore these options to find strategies to boost your leverage in operations.
In some cases, this means formulating a buyer model based on personas that will yield a slightly higher average income per customer (ARPU).
In the case of others, this means including a new add-on that allows them to raise prices.
For others yet, it may mean switching from a flat-rate pricing system or a user-based pricing model to a more dynamic model that is based on features or on usage.
Monitor the effects of any Changes to Your SaaS Pricing Strategies
For example, if the customer base shrinks a small amount when you rise in the price however, the remaining users are paying a higher price and generating more revenue generally, some companies might be thrilled with that change.
However, you must know what changes are important to your business structure. Established SaaS business may have very different priorities from one a start-up has.
The word "success" is written with three S's
Often when we think of price and packing, it is often to think of combining the ability to earn more revenue with our ability to invent something completely new.
Take for example the innovation curve which is a curve that says: we make something that is then adopted by more people; it plateaus. And it's easy to get caught in the thinking that the only way to get an entirely new source of revenue is to design a completely totally new product.
Then, we can break the thought process and begin to think that fresh income S curves could be developed by altering the package, plan, add-ons, and more, just by giving users new ways to purchase from your company and utilize your platform.
If we take into consideration a usage metric based on a value metric that has overages these new plans as well as extensions themselves could increase ARPU over time.
SaaS Price and Packaging Add-Ons
Add-ons offer an easier path to increase the revenue average per user, for both current and potential customers with the tightest budgets, since they have the option of choosing which products to buy from you instead of paying, say, flat-rate prices for a bigger package, which includes a number of options they do not want or need.
In other words, do you have existing entitlements you can offer as an add-on without creating any additional engineering work? Could one of those functions be separated to create a new SKU without making a completely new product?
Add-ons can be found in numerous varieties So you'll be able to have many different add-ons or create multiple bundles.
These add-ons carry a high risksince they may lower the upgrading MRR in the event that fewer users are upgrading to a larger package. However, add-ons can be a powerful driver of NRR.
To minimize the danger, be sure to carefully assess your rates of upgrade and downgrade when you start making adjustments to your packages and add-on services.
Additionally, you can also delay pitching add-ons up to after users have signed up to your main product. When they're already using the product they've purchased and are enjoying it -- and once the additional purchases they make would qualify as upsells, that can boost your number of revenue retention -- pitch them add-ons that would further enhance users' experience using your product.
Customers can purchase your SaaS product at an affordable price that will help build your MRR and ARPU through those additional sales.
A lower price can also aid you in gaining an edge when going after market share, too -in particular if you're able to lower prices of competitors a little.
Create a New Pricing Tier to drive the Average Price Per User (ARPU)
Is it possible that the ARPU-boosting tier you need is one that is available in your current plans?
If, for instance, you're operating a tiered price model with $15, $150 and $300 options, maybe the right pricing tier to drive more revenue lies somewhere in the middle and around 75 dollars.
Segmenting SaaS Plans can help you understand the Value of Your Product and boost ARPU
Another option is to divide your packaging according to specific customer needs.
In this case, WP Engine is a managed WordPress platform which handles all kinds of sites, but they saw the opportunity to focus on WooCommerce users in particular, which is why they designed a bundle that targeted just that audience.
It allowed them to focus on their customers' requirements in this specific segment to attract their attention, and to get more signups. Over time, WP Engine was able to increase the value of their product to those customers that increased the revenues for WP Engine.
The Payment Frequency increases leverage
An annualized pricing option gives customers the advantage of discounts by having to pay for the entire year upfront, but it also gives an opportunity to reduce the churn rate and increasing the overall value of a client's lifetime, or LTV.
For further benefits from this method to further leverage this strategy, you could offer more aggressive annual pricing discounts to new subscribers, or for those subscribers willing to switch from monthly fees to annual fees.
Pricing for the first period can make adoption easier for users.
Tips If you're selling the Enterprise plan and your cost starts to appear somewhat more costly when paid for annually and you want to keep that price below $5000. Many procurement departments have a policy of requiring employees to obtain approval to make purchases greater than $5000, therefore if you can keep prices under that limit and make it easier for customers to easily make that purchase via credit card without having to go through the internal hurdles within their companies. This can vary and isn't a rule, but it's a good guideline to try out.
The Inflation Rate isn't Even: Change Your Strategy
When you think about altering your SaaS company's pricing strategy, potential customers' willingness to pay for the service isn't the only thing to keep in mind. Inflation can vary a lot within a short period of time. This variation can be further varied throughout the world or in each region.
Financial headwinds as they relate to various geographies can mean that localization becomes more important in the event that you are offering your saas product globally.
Get rid of unnecessary purchasing friction with Localization
The term "localization" typically refers to a variety of aspects, including but not limited to:
- Accepting the preferred payment for the region which you're selling your products into.
- The price is localized.
- The currency is localized.
Each one of them has each of them having its own benefit, not only for the buyers but for your profit margin too.
Pricing for localization converts to 2x for B2C SaaS companies. Make sure that you provide a good justification for various pricing across diverse regions or countries, in case a potential customer manages to see more than one price.
Local currencies are much easier to get approved and for customers in your target market to grasp. If new customers can see your SaaS costs displayed in a local currency, it makes it that easy for them to shop and removes the hassle of the conversion process before making the decision.
What Can Help
The information contained in this piece was just presented by David Vogelpohl in a webinar held by Cumul.io. Check out the video on their YouTube channel.
More articles about SaaS fees and pricing you may be interested in:
